Mr. Frugal Toque on Mortgage Freedom

Foreword from Mustache:

Almost exactly one year ago, our Canadian correspondent Mr. Frugal Toque and his family reached a nice milestone: a mortgage balance of Zero. Although early retirement and financial independence do not strictly require you to pay off your mortgage (or to own a house at all) as long as you have other investments to cover your housing outflows, for many of us there is an irrational and long-lasting glee that comes from owning the place in which you live.

From a rational perspective, sure, stocks and other investments will tend to return more than the 4% you’ll save on mortgage interest. But the mortgage “return” is guaranteed, and fully non-correlated to the stock market. Plus your home will always be yours regardless of what shenanigans the financial system might pull. 

Whatever the reason, mortgage freedom tends to deliver long-lasting happiness to many of those who buy it, which makes it one of the better ways to spend money in my book.

Mr. Toque wrote the story below right after he first killed the thing, then added an afterword to explain how he felt one year later. Finally I have found the right time to publish it. Enjoy!


Mortgage Freeedom

soloI’ve never liked debt.

I should say that first because, of all the privileges I’ve had in my life, developing a hatred of owing someone money has been one of the most profitable.  Every time in my life that I’ve ever borrowed so much as a loonie[1], there’s been a flashing red sign over my head:  “NEGATIVE $1”.  Once I forgot to pay back a guy ten bucks I owed him and he had to remind me.  I am ashamed to this day.

This has given me an edge in life that I can’t overstate.  The idea of running a balance on a credit card is so alien to me that I can’t believe anyone does it, never mind the breathtaking number of people who are comfortable with it.

On the subject of a mortgage, however, I ascribed to the wisdom of the times.  Given the size of house Mrs. Toque and I had decided was appropriate, it made more sense to get in on a fairly cheap market (Ottawa in 2002) rather than rent while gaining no equity.  With our down payment, we took out a mortgage for approximately $260 000.  For the first couple of years, when we were financially flopping around like fish out of water, we didn’t even pay attention to our mortgage.

“Strange,” we seem to have been thinking.  “In this one hand I have extra money.  In this other hand I have a mortgage.  I suppose we should buy a big television.”

Yeah, we really did stuff like that.  Not only is it a sad story, it’s also the tragic plot followed by the vast majority of house-“owning” humans in North America.

“Well, you see,” common thinking goes, “I’ve got a 25 year mortgage.  Can’t do anything about that.  I guess this extra money in my bank account should be turned into a boat, some leather clothing and a heated, indoor swimming pool.”

Then, about two years ago, when Mustachianism had already started chipping away at our habits, I got laid off.  You can read about that in detail, but the relevant bit is that Mrs. Toque and I enjoyed my period of unemployment so much that we became determined to make it a permanent thing.

The first obstacle on that road, from our perspective, was to kill off the mortgage.  Neither of us could rest easy knowing that a monthly payment so large would be hovering over our heads.  So we looked at our budget.  It turns out we live on about $2300, eating fancy seafood and enjoying our family martial arts workouts.  Our mortgage, as well, was set at $2k per month.  Without going into super personal detail, let’s say my salary is quite a bit more than $51k.

So I went into Kung Fu spreadsheet mode and my predictions looked something like what you see below.  The green line is how long it could have taken us.  The red line was another, more serious route.  I turned to Mrs. Toque to say:

How it could have gone vs. how it really went

How it could have gone vs. how it really went

“Honey?  We can beat this fucking thing into the dirt by the end of next year.”

“Really?” she asked.

I waved my hand at the undeniable, mathematical facts displayed on the screen.  A tingly, Han-Solo-saves-the-day, euphoria rushed over us both.

“Hell.  We’re that close?” she said.  “Let’s do it.”

What ensued was a laser like focus that would have made Mr. Mister proud.  Oil changes became things done in our own garage.  The barely used motorcycle was sold.  While I toiled at the 9-5, Mrs. Toque engaged in a culinary conquest that involved making large batches of chilis, sauces and curry dishes and freezing them in yogurt containers.  Our house was scoured and cleansed of numerous Products and Outgrown Clothing in exchange for hundreds of dollars through various Internet intermediaries.  Every bonus or raise was purposely channeled toward this one goal.

Video game purchases were put off, allocated as exceptional acquisitions belonging to special occasions like Christmas and birthdays.  We cut out restaurants in similar ways, doggedly keeping to our $2k budget.

There have been a few times in my life where I have felt something seize hold of me like this: a karate tournament when I was young; the desire to run 10k in under 50 minutes in more recent times.

This was something more intellectually powerful and more enduring than any of those previous desires and it drove the two of us for just about a year and a half.

On January 1, 2014, the Toque family made its final mortgage payment.

My grandmother and her sisters could drink you under the table.

My grandmother and her sisters could have drunk you under the table.

As promised, a bottle of whiskey was purchased.  You can’t really do anything impressive in my family without shots of Crown being involved, and this goes for births, deaths, weddings, birthdays, religious holidays and the stomping into cinders of a mortgage.

And though the shots were hammered back to mark the occasion, the gravity of the situation didn’t pull us in right away.

Mortgage freedom, like any other widening of the straits through which we guide our white-water kayaks, takes a while to register.  There’s this uncomfortable lack of turbulence and drama that makes you think something is about to go wrong.

As February came around, the instinct to “check the bank account” still nagged at me.  By March, money was just sitting there, comfortably reassuring us of the reality of our financial situation.  I scratched my head in dismay.  We’re in June now and it’s really dawned on us that our monetary burn rate has dropped by half.

Yes, it's exactly like this.

Yes, it’s exactly like this.

I wake up every morning and I can take a deep, relaxing breath knowing that I don’t owe anybody anything.  I ease into my morning cup of tea as if I were Patrick Stewart lounging in the ready room.  Every paycheque that comes in?  That’s ours.

The danger now, as with any reduction in stress in our lives, is that we let the new width and relative calmness of the river we fare allow our paddle strokes to become sloppy.  This is not the time, in the first months of our mortgage freedom, to start piling up the Lego sets, golden-handled frying pans and $500 bicycles that the 8 year old will outgrow by next summer.

We need only remind ourselves that expensive items, and even expensive experiences, will not make us happier.

As per the advice of the Mustachian horde, we cranked open a Questrade account and started dumping that money into Vanguard ETFs via RRSPs, but we can only do that for so long.  The key to our existence now, as we run the last leg of the race to early retirement, is not to let money sit around idly, tempting us with its purchasing power, but to get it stashed away as quickly as possible.  Online brokerages make that bit pretty easy: you can deposit money directly from your bank account into RRSP or TFSA accounts (The Canadian equivalent of Roth thingies and 401 what’s-its-nuts.)

But that’s only the technical side of things.

The heart of the matter is something else entirely.  It’s looking at the debts side of the spreadsheet and seeing nothing there.  It’s also a clear, wide open path from this point to the spot on our life journey where neither of us is ever again obliged to work in order to have the necessities of life.

Early retirement wasn’t an entirely real thing, at least in my mind, despite having seen that the Mustache family had clearly achieved it.  Making our mortgage a thing of the past, however, emotionally solidified the mathematics.  The equations and the spreadsheets, like the one you see above, aren’t nearly as tangible until you actually see the descending line hit the x-axis.  Then, very slowly, you realize that the math was a map of the world as it actually exists.  There actually is money piling up in the bank account.

And if the road to mortgage freedom is real, then the road to early retirement is real, too.

Update: January 2015

This article was written some time ago, as the feeling of being mortgage free was just starting to sink into the Toque family.  Our primary worry, naturally, was that we might be tempted by all this money floating around into becoming the sort of Consumer Suckas that we detest.

I’m glad to report, on further examination, that no such thing has happened.  Our monthly expenses did rise, from $2391/month to $2416/month, which is actually less than inflation.  So being mortgage free came without any statistically significant change in our spending habits.

Separately, what have we done with the money?  Exactly what we said we’d do: it’s all gone to fill up our RRSPs and TFSAs, which still had room from previous years.  As I discussed in a previous article, my priorities were:  RRSP, Mortgage, TFSA, due to my own hatred of debt.  So once the RRSPs are full up for the year, I dump everything into TFSAs.  Sadly, I’m going to run out of TFSA room sometime in the next year or so, necessitating further investigation into “Dividend Mutual Funds” and the magic I can work with them.

[1] – no seriously, that’s what we call a dollar in Canada.

It is now easy to find everything from Mr. Frugal Toque on this blog since he has his very own category.

  • Embok January 24, 2015, 11:05 am

    Congratulations for paying off your mortgage! When I had a few big years resulting in a pile of cash (my business income vacillates wildly), we took a different approach: instead of paying down our home mortgage, we bought a 4 unit apartment building through a short sale for cash. Since we are in the US, and in a high tax bracket, that let us keep the mortgage deduction for our home – which is quite valuable to us, due to our situation – but the income stream from the apartments is enough to cover our mortgage. And the depreciation on the building helps shelter the income from it from taxes. I figure if everything were to go to hell in a hand basket financially, we’d sell the house and move into one of the units, and live rent free. In the meantime, the building has appreciated on paper (I have no plans to sell); at least that part of our net worth is outside the stock markets; and we have a “plan B” as well as the emotional satisfaction of owning a property outright. Still working to get our consumption down, but our biggest issue is always taxes, as DH and I are self employed.

  • Rebecca January 24, 2015, 11:50 am

    Hello MMM and Mr. Frugal Toque! Thank you for saving us- I decided we needed to get a handle on our finances in August 2011, and in July 2014 we paid off our final debt; our mortgage. MMM’s blog kept me going the whole time. As fellow Canadians, we’re hot on your trail, Mr. FT. I need help! I opened a Canadian Questrade RESP account and put in $13 000 cash to begin catching up contributions for three kids. But, I can’t understand what to do next. I want to buy a mix of index funds and bonds, and I downloaded the practise version of Questrade; but I don’t understand the lingo and the symbols. The tutorials all assume that I understand the vocabulary and investing, but this is my first time. Please consider posting directions! Thank you both!!! (for information on my overuse of exclamation marks: http://www.cbc.ca/player/Radio/The+Irrelevant+Show/ID/2648848041/ )

  • Nicole January 24, 2015, 1:52 pm

    For those who, like us, are choosing to pay their mortgage off asap, a good way to do it is to just set your regular payments up to be as much as you can afford without incurring an overpayment penalty. That way you won’t even think about it. When we got ours we were able to set it up to double up our payments each time we did a biweekly payment. We didn’t think we’d be able to afford this on an ongoing basis but we soon realized we were managing just fine. We also put some other money on the mortgage here and there, and we should be mortgage free by October, just over 6 years after taking on a $265,000 mortgage!

  • Zambian Lady January 24, 2015, 2:40 pm

    Congratulations on paying off your mortgage. There is no feeling like owning free and clear at last. I hated debt so much that I built my house back home just by saving up and only got debt for $7,000 which I needed for an urgent task that could not wait. However, I have now decided to get a mortgage and build rental properties (back home, still). It is much cheaper to build in Zambia than buy here in Vienna. I will try and pay off the mortgage as quickly as possible though.

  • DrStan January 26, 2015, 7:31 am

    Congratulations Mr. Frugal Toque! We paid off our Ottawa house a few years ago at age 31 and our net worth has grown in leaps and bounds since then. The strategy has been to use about 20% of the home equity to borrow and invest in dividend growth stocks. Interest is fully deductible at marginal rate and the dividend income is tax-advantaged, which provides some nice tax arbitrage. It has yielded fantastic results and the dividend growth has been strong. There is also the comfort in knowing that we could at any time stop working, sell off a couple of large positions to repay the loan, and live frugally on investment income only. This is the early retirement ticket. Life is good. Enjoy the freedom.

  • Graham January 26, 2015, 8:26 am

    You addressed the mental health improvement associated with paying off the mortgage, but I almost have the other way around.

    I bought my $120k house cash (nice backyard, 3 car garage for tools and projects, large fenced in yard, finished basement etc.). It’s really 3-4 times more fun, useful, and comfortable than any apartment I could find for $900/mo. I was able to save $5k with my cash offer though.

    I lament the cash I have tied up though. I’ve been considering taking money out on a home line of credit, just to make that $120k work for me. I easily cover the $3k in property tax with AirBnB money (around $1,000 per month on average).

    Should I take out a loan and get the money invested?

  • James In Denver January 26, 2015, 12:52 pm

    I really appreciate the MMM blog because it is normally about the numbers and how to make them work for you, but this post seems to be the complete opposite. As a 31-yr old who has just surpassed a net wealth of $1MM and has been averaging 30% return on cash invested in real estate, I find this recommendation to pay off your mortgage pretty anti-numbers. It seems to say, ‘even though the numbers say you probably shouldn’t pay off your mortgage, it feels good to do so.’

    Just like MMM ~8 years ago, I have a nice engineering salary and a wife who also has a nice engineering salary; and also just like MMM, we purchased a bunch of highly-leveraged (mortgaged) real estate in a recession, and watched it all explode in value; also just like MMM, we only spend money on necessities.

    Mr. Frugal Toque, isn’t the good feeling associated with having no mortgage equally offset by the feeling of having so much of your wealth wrapped up in the house you live in? Sure, it looks ok in the years your house appreciates in value by 10%, but that won’t be the norm. The way I see it, every dollar of equity in your primary residence is a dollar that could be invested somewhere else. When interest rates hit 7, 8, 9% you are going to wish you had locked in a massive loan at 3.5%! The government is essentially subsidizing free loans! And it’s not going to last forever! The younger you are the less it makes sense to pay off your mortgage, rather to invest your extra cash so that it can grow for you. I don’t plan on paying off my mortgage on whatever house I happen to be living in until I’m maybe 50 or 60 yrs old. On top of all of that, add in the mortgage interest deduction and I find this post pretty anti-numbers.


    • Mr. Frugal Toque January 29, 2015, 8:18 am

      I have a slightly old fashioned approach to housing.
      1. Build/buy a house you can afford
      2. Pay off the mortgage while personalizing the house.
      3. Live there
      So the fluctuation of the house value doesn’t internally affect me at all (except as it affects property taxes because we live in Ontario). I don’t see it as an investment, generally speaking, unless some emergency happens. I see it as an expense, a cost of living, to be paid off and be done with.
      I realize this isn’t a modern interpretation of housing value, but it works and provides peace of mind. All I have to do now is get enough money saved up that I can afford my expenses including property taxes. At that point I declare myself retired.

      • Julia January 29, 2015, 10:38 am

        Yes! This is our approach too. If we were planning to continue working full-time for the next fifteen years anyway, then it would make sense to debate whether to pay our 15-year mortgage off early or not. But we are shooting for killing the full-time day job as fast as possible, not making the most money possible (partly because we are both just about 40 already).

      • James In Denver February 4, 2015, 1:22 pm

        I understand; and I also see the comments clarifying that the 30-yr fixed mortgage option might not be available in Canada, which would change the numbers considerably.

        Speaking of housing values, retiring early creates quite a predicament: ideally you are living in the cheapest house that you feel comfortable in, so that as much of your wealth as possible can be invested. If I am worth $1MM and live in a $400k house (current home value), I have a lot less to invest and live off of than if I were living in a $100k house (although low mortgage rates help the 400k house affordability). As I get closer to early retirement I can see that I may be priced out of Denver. It would be sad to leave, but in retirement Denver’s large employment base and light rail (for commuting to work) won’t be needed.

  • Rob January 27, 2015, 5:02 pm

    Love this post. We have paid of two houses in during our 18 year marriage. The mortgage payments have basically staid the same as we have rolled the equity from each paid of house into the next more expensive home. I told my friends to never let me use any debt for any other house in the future. If I di,d they were to take me out back and beat my senses back into to me. This 1,938 monthly mortgage is the last one. The equity in this house will buy an ample house for this family of four anyplace we want to live.

  • Chris January 27, 2015, 6:27 pm

    We’re almost 3 years into our mortgage and are thinking of selling it in maybe another 3 to move internationally. Would you still focus on paying off your mortgage in this situation?

    • Roger January 28, 2015, 11:34 am

      Almost certainly not. Just run the numbers, and you’ll see how it works. Let’s just use easy math based on recent figures.

      $200,000 30-Year Fixed @ 3.875%
      Monthly P&I = $940.47
      You’re 3 years in, so you’ve made 36 payments.
      Current Amount Owed: $188,771.15

      You want to sell in three years. If you continue your current path, you’d pay another 36 payments of $940.47, totaling $33,856.92.

      Amount Owed @ 6 Years: $176,160.40

      Now, let’s accelerate those payments. I’m going to assume you want to be fairly aggressive and toss an extra $1,000 at this mortgage every month for the next 3 years.

      Total paid over the next 3 years is $69,856.92.

      Total owed after 3 years of accelerated payments: $138,049.54

      Difference: $176,160.40 – $138,049.54 = $38,110.86

      So basically, you forked over an extra $36,000 to put $2,110.86 in your pocket. Why does the difference seem so puny? Because your timeline is so short. If you stopped paying the extra $1,000/month after 3 years but stayed through the 30 year term, you’d save almost $48,000 in interest and knock off 88 payments.

      In my opinion, $2,110.86 is not worth the risk of plunging an extra $36,000 of your money in to this mortgage. You’d be better off saving for your move and/or putting the $36,000 to work for you in investment vehicles.

  • Beard Better January 28, 2015, 1:56 pm

    It’s funny how something so demonstrably sub-optimal can have such a calming effect. Looking at it from a purely mathematical standpoint, the authoer here is 100% correct to say that he could’ve made more money by chasing higher returns. But that’s why it’s called PERSONAL finance; we need to live somewhere, and we need to be able to sleep at night. It would be foolish to pretend that it isn’t sometimes worth paying a premium or giving up on higher returns to be able to breathe a sigh of relief about owning your own home.

    It’s important to plan for reality as it is, with all our shortcomings and personal preferences, than some theoretical realtiy that we would like to aspire towards.

  • StrayCat February 4, 2015, 2:52 pm

    I can’t wait to experience this feeling. We moved a few blocks from Mississauga into Oakville almost 3 years ago for a better school, which I kind of regret now. I LOVE the school and it is a much better neighbourhood, but we basically erased any mortgage progress we had made. The milestone I’m looking at – in a few weeks ours will go under $400,000. Yay! (sarcasm). We pay $700 a WEEK. It is due to be paid early as we do pay weekly higher than we need to. Our house is worth over $800,000 now and I’ve tried to convince my husband that we should sell and move to my hometown 2 hours away where we could get a similar house for $250,000 and have NO MORTGAGE. Another great post, Mr. Frugal Toque! And congrats.

  • The Investor February 5, 2015, 4:07 pm

    Mr Frugal,

    Over the long-term (113 years to end of 2013) equities have returned a nominal geometric mean return of 9% a year / an arithmetic mean return of 11.3%. By the same measure bonds have returned 5.4%/6%.

    If you can lock in a fixed rate mortgage for around 4% today for a decade, say, then I personally like those odds. Even better a mortgage is not marked-to-market (so you don’t face margin calls if house prices oscillate) and most enable some measure of flexible repayments (so you can overpay if the prospective return from equities looks poor).

    Moreover there are different ways to effectively borrow to invest via a mortgage. Using an interest-only mortgage is riskier (because you will face sequence of returns risk on the repayment date, although this can be mitigated as above with earlier repayments) versus a repayment mortgage, where you believe you can safely pay off the 25-year term from salary etc, and save on the side into equities (which is what most people actually do in reality with a pension).

    There’s nothing wrong at all with paying off a mortgage first, but there’s a risk/reward justification for other strategies, too.

  • ickabug February 7, 2015, 12:46 pm

    I was just reading some of the comments and it reminded me of how my wife and I bought our first house. It’s a little off topic, but might be useful to some. We were living in a rental and wanted to buy a house. This was in the 80’s when interest rates were something like 18%. (Yes, it’s true!) We needed to save money for a down payment and then figure out how to pay a mortgage with a two figure interest rate.

    The upside of the high interest rates was that money market funds paid a really decent interest rate too. So what we did was figure out how much a mortgage payment would be for a house that we could afford. It was about double our current rent. So we paid the rent and then the additional amount that would be our future mortgage payment went into a money market account.

    So two things happened. First, we got used to paying that mortgage payment. Second, we started saving up a big pile of money (to us) to get our down payment. We put the money in money market funds because they had great interest rates and were liquid. During the time we were saving, the interest rates started to come down. By the time we had enough money to buy a house, the interest rates had dropped to a very affordable 12%.

    And just to cap off the story, a couple months after we bought the house, I got laid off! We survived that little crisis, but it was exciting at the moment I can tell you that. You can do anything if you put your mind to it.

  • The Accumulator February 9, 2015, 7:43 am

    There is a school of thought that says you should invest by mirroring the investments of the ultra-rich, eg Warren Buffett. There is some soundness to this approach – the ultra-rich have access to information we don’t, and by their very actions they can change the financial landscape.

    Let’s say I told you that Buffett has a 17 billion dollar mortgage. Because of various business decisions, he is actually increasing that mortgage value every year.

    What if I also told that Buffett had a magical power that could lower all mortgages at will. I wouldn’t have to tell you that Buffett doesn’t like losing money, and would rather use his magic power than paying back the full mortgage. Wouldn’t getting a mortgage and enjoying Buffett’s magic power when he used it be cool?

    As it happens, if you replace “Buffet” with “US Government”, replace “Billion” with “Trillion”, replace “mortgage” with “national debt” and replace “magic power” with “the ability to control inflation”, you have something pretty close to reality. Nominal debt at low interest (not to mention tax deductible interest) is a good thing if you use it for investing (patience and safety cushion may be required).

    • Mr. Money Mustache February 9, 2015, 8:09 am

      Haha, nice analogy. But is the US government really a great role model to follow? And on the other side of the coin, does Warren Buffett keep an open mortgage on his primary residence?

      No.. and I don’t do it either because it isn’t worth the trouble (mental energy consumed would be greater than financial benefit earned). If you balance your assets well, your residence should be a small enough part of your wealth that it isn’t worth fussing with.

  • Debbie February 10, 2015, 12:10 pm

    Behavioural economics teaches us the pain of regret associated with a loss is about double the pleasure associated with a gain. Being in the same boat as you (pay down debt vs invest) it’s helped me to ask the question, “Which decision, if wrong in hindsight, will cause me the least regret?”:

    Wrong decision #1 (debt pay-down): house paid off but stock market doubled during that time.

    Wrong decision #2 (invest): market tanks by 50%

    For me anyway, #1 would produce less pain- I’d rather miss the boat than get run over by it.

  • Meg February 10, 2015, 12:45 pm

    Mr Frugal Toque,

    What a fantastic post. I note that amongst financial planners it’s almost standard to recommend keeping a mortgage both for tax write-off and to free up money for investments, with an almost off-hand disclaimer about the risk that the interest-rate arbitrage isn’t guaranteed to pan out. Equating investing “on mortgage” with investing on margin would be a delightfully concise way of making someone understand the risk of doing this very common (and I think probably not well-enough understood) thing!

  • Trevor February 13, 2015, 3:11 am

    I can’t imagine someone buying a house without a mortgage. But I would rather pay it off as quickly as possible, rather than have it linger. With low interest rates, much more of an aggressive payment schedule can go towards paying down the principle.

    I’ve listened to Dave Ramsey’s “pay cash for houses” with fascination, because I think he gives poor advice on that front. He advocates people save up cash until they have enough money to buy a house outright. So many of the Americans following this advice (and he has a huge following) are never going to end up with a home. As home prices increase, they’ll be chasing something they never catch up to. U.S. home prices are still cheap. And mortgage rates down there are set for the duration of a loan. In Canada, there are five year terms. Down there, you can get a mortgage for 30 years at 4%. That, in itself, baffles me. When interest rates rise (and at some point, they will) it’s going to be a perfect storm for American banks, receiving a pittance in payments when global rates everywhere rise.

    • Eldred February 18, 2015, 8:56 am

      Dave Ramsey may RECOMMEND someone purchase a home with cash, but he doesn’t give people GRIEF for having a mortgage. However, he suggests a 15-year mortgage with a payment of 25% or less than your net monthly income.

  • Sandy March 1, 2015, 8:43 pm

    My husband and I paid off our mortgage in December, we have still been able to max out our tax deferred retirement accounts for the last five years. It feels good! No regrets, I am 52 and he is 55. It feels good to have this done. We want to retire in no more than 5 years. We are used to living beneath our means, so I think we are on track.

  • Cali April 19, 2015, 6:03 am

    I just have to say I have watched my parents suffer by not paying off their mortgage, and I am determined to avoid meeting their fate. I am going to tell a story that shows the value of paying off your home ASAP – their story.

    I grew up wealthy. Not multimillionaire wealthy, but my daddy makes $250k/year in a low cost of living state wealthy. My parents only paid the minimum on their mortgage because they enjoyed deducting the interest, and I suppose it did save them money at the time. Then, my father’s company moved to Mexico when he was in his 50s and he decided to stay in the United States. Due to other pride-related shenanigans, he did not get severance pay. Then, we had to pay off the $500k lake house that we had bought AGAINST COMPANY STOCK instead of paying for in cash, when the stock went almost to zero overnight. This is a level of stupid all its own – 1. If the stock you own goes to 2 mil, at least sell enough of it to pay off your houses, or 2. just go ahead and sell it all and RETIRE ON 2 MILLION DOLLARS! My dad is damn lucky my mom didn’t divorce him over this one.

    Then, my dad was job hunting in his 50s and overqualified for just about anything you could possibly imagine. No dice. He even had to have surgery without health insurance at one point, so you can imagine the money was just gone after a while, even though they had decent savings to begin with. Finally after years of unemployment, he got a ridiculously low paying part-time substitute teacher for special needs kids job where the behaviorally and intellectually stunted kids liked to punch him in the face, and he was only two years away from getting a pension for that when wham! He had a stroke and couldn’t work anymore. My mom was working a $9/hr retail job at the time to make ends meet, but she also quit when she got breast cancer and had to take care of my dad at the same time.

    I say all this to point out that NO ONE is safe while you still owe money on things. You may be making a killing and have a ton of money in the bank, but if you make bad investment decisions, or get laid off in your 50s when no one else is going to want to hire you, you are going to be screwed if your housing is not paid for. It is heartbreaking watching my parents try to get rid of things and get the house organized so they can sell it. They just can’t afford the mortgage + equity line payment on two Social Security-only incomes, so now they’re going to have to get rid of their custom built house that they thought would be their forever home. They say it’s “too much to keep up with,” but the truth is that if they weren’t paying their mortgage, they would be making more than enough to live comfortably AND pay people to take care of the house/yard for them.

    Not paying off your mortgage so you can have more money in the bank now is NOT worth the potential risk you are taking of having more expenses than you can afford if your financial status changes.

    • Joe Average April 20, 2015, 8:51 am

      Great post Cali! Your parents’ situation is exactly the situation I would fear carrying a mortgage when I didn’t have to at some point. The interest on the mortgage always outweighs the tax deduction for us.

  • Nate May 5, 2015, 9:37 pm

    After working with homeowners in foreclosure for a few years (It was the only work available in 2010) there are a few interesting things I have pondered but not mastered in resolution. One would be that by refinancing you are basically giving up your previous amortization schedule that had most of the interest frontloaded to the first half of the payments, for a new amortization schedule that would not forgive the extra interest you paid up front for the initial loan and thus leaves you with a new amortization schedule with the interect refrontloaded. I am not a wiz-kid but it seems this way. Thus you end up paying interest towards time on a loan that was not used and are rewarded with less principal being paid on the new loan up front again.

    A second thought from my experience is be careful about what state you may consider having a rent house. There are people who lose everything because they go for a rent house for income/paying for the property and then the renters stop paying. In some states in the USA it is very difficult to get the deadbeats out even though they are not paying. And these horrible renters know exactly what they are doing. California is the worst and I work with people all over the country. I talk to Californians weekly who have renters not paying rent and can’t get them out.

    Next thought is don’t pay extra towards the mortgage little by little. Doing so will only shorten the term not what you pay in interest. Instead save up a good amount and then pay and then ask for a recast. You will need to ask your lender for the requirements to get a recast but typically requires a good chunk down on the principal. Basically they adjust your interest so you don’t pay as much since your not borrowing as much any longer. (from my understanding)

  • TB September 14, 2015, 12:49 pm

    So the mortgage was paid off 15 months early?

  • The Investor September 4, 2016, 1:13 pm

    Mr Frugal Toque,

    Mortgage rates haven’t been 8% since the late 1990s. So that’s 15-years ago, and when base rates were far higher. That’s 15 years of a 30-year mortgage right there. Yet you talk about “historical norms”…

    Meanwhile, we currently exist in a world of near-zero interest rates, and have done for seven years. The only way mortgage rates are going to 8% in the next 10 years or so (and probably beyond) will be if the Central Banks lose track of inflation, at which point *having* a big mortgage would be desirable (because hyper-inflation erodes debt fast).

    A majority of middle class professionals have a mortgage and save into a pension at the same time. Most, I imagine. So by the logic of the mortgage alarmists, they are all following bad advice.

    Don’t get me wrong, I think there is NOTHING wrong with paying off a mortgage as fast as you can. It is one of the safest investment you can make in terms of guaranteed return, though it does have disadvantages — in particular woeful diversification (all your investment eggs are in one basket — residential property, and just one residential property at that).

    And I fully agree there are greater risks with continuing to invest when you could be paying off the mortgage instead, especially outside of employer-matching pensions and the like.

    But in return, there are potentially greater rewards. It’s a decision. That’s what investing is about.

  • The Accumulator September 10, 2016, 7:02 am

    Mr Toque,

    Two and a half years ago I’d saved enough in cash and index funds to pay off my mortgage.

    I didn’t do it.

    Instead I cooked up a clever-clever plan to slowly pull out of equities over the next eight years – hoping to squeeze a little more from the upside along the way.

    I’d won the game but I kept on playing anyway.

    What happened was that I found out a lot about myself – especially my ability to tolerate risk

    Half of my mortgage repayment fund was sat in cash, half in equities. The idea was that instead of wholesale withdrawal, I’d stage an orderly retreat that would put me 100% in cash by 2021.

    But no plan survives contact with the enemy. Especially when the enemy is me.

    When I sketched out my scheme, I thought the enemy was a remote nightmare scenario where Mrs Accumulator and I both lost our jobs while equities crashed like a meteor to Earth and interest rates plumed like so much radioactive dust.

    And in 2013, the recovery from financial Armageddon 2008-style felt like it had some way to run.

    I didn’t want to miss out on the boost that staying strong in equities could give me as I pushed towards my next summit: financial independence.

    It was a calculated risk, and many warned me against it. Their concerns mostly related to a deep personal hatred of debt.

    If you have it, get rid of it. Don’t take chances. Cut your chains as quickly as you can and get the hell out of there. Don’t saw halfway through the manacles then hang about pulling victory poses in your cell while the guards play cards next door.

    It was good advice. However I felt that time and financial wiggle room was on my side.

    Change of plan:

    The markets climbed. My portfolio was up 20% by the end of 2013. The rise continued as I made my first annual withdrawal early in 2014.

    The sun kept shining. News bulletins proclaimed record stock market highs.

    It was like watching a rich kid open yet another present: “What have you got me? Oh yeah, another record high is it? Thanks.” (Tosses away).

    But I get nervous when things go too well.

    And the stock market is a see-saw: As valuations soar, expected returns fall.

    With expectations diminished by those record highs, it was time to rethink. Time to rebalance out of equities.

    Time to take money off the table faster than a poker cheat in a Yakuza den.

    By the time my 2015 withdrawal came along, my allocation to cash was already one year ahead of schedule.

    There’d been a sharp, downward jolt September to October 2014. Call it a warning. I didn’t know what was going to happen next but salad days seemed less likely.

    Equities marched on to new highs in May 2015. That was the last high they hit.

    I pulled out another year’s cash in April.

    My equities were now worth about one quarter of my mortgage.

    Turmoil hit in June, August and September.

    On my bike ride to work, I didn’t look at the rolling fields and trees. I kept playing my risk tolerance game

    What if I lost half of everything from here?

    A 50% loss would wipe out 12.5% of the mortgage fund. I could make that up in savings in less than a year. Rationally-speaking, there wasn’t a problem.

    But there was.

    I’d crossed an emotional Rubicon. I was taking risk I didn’t need to take. But it took the recent 15% losses to make me realise it.

    What did the downside look like?


    What did the likely upside look like?

    Meaningless. A few extra grand or so.
    Investor know thyself

    My risk tolerance had shriveled away now my original objective was achieved.

    I was much less brave in the face of losses that I had no business taking.

    I sold out the next week.

    That was back in November. Six years early. The mortgage fund is now 100% in cash. No one can take that away from me now.

    Not even myself.

    It was one of the best decisions I’ve ever made. Like popping a pill marked ‘worry begone’. Now I’m back to gazing at the rolling fields and trees (/grizzling over some other aspect of life).

    I got lucky. Large losses could have punched a hole in my assets and the wind from my gut. That would have been fine if my risk tolerance hadn’t changed once I’d mentally ticked the mortgage off as ‘done’, but it had.

    Since then I’ve taken much bigger losses on my financial independence fund and not felt a thing. Because that’s risk I need to take and the day of reckoning is years away.

    Hopefully this earlier skirmish is a lesson I’ll remember when the time comes to take that money off the table, too.

    At the very least, I know myself much better than I did. The markets tend to force truth on a person.

  • Cody Mustache March 19, 2017, 12:15 pm

    I’m new to the Mustachianism cult but LOVE this site so far and believe it hugely supplements many of the rules I’ve tried to follow for years. I was hoping to get some advice though from experienced folks, since it looks like the people here are incredibly knowledgeable:

    My wife and I are 28/29 years old, and we just purchased a modest 2br condo downtown Chicago with cash. We were lucky in that our first condo we bought when we were 24 years old experienced a massive boom in value based on location, and we were able to make a nice profit from selling it (after renting out half of it to our friend and living in the other half for ~3 years). I’m the type of person that gets a lot of anxiety about debt, so we opted to put all of our liquid funds into buying this home with cash, even though I understand it’s very possible to invest this at a greater yield than the ~4% that avoiding a mortgage avails. My question now is where do we go from here? My wife unfortunately has $60k in student loans which have been refinanced and we currently just pay the minimum on, but no other debt whatsoever. We also can save about $3,800 / month by adhering to good cost-saving practices, and currently don’t anticipate any large purchases in the coming several years. Since we literally JUST bought our house, we have very close to $0 liquid savings again, and about $80k total in our 401ks and a vesting employee stock plan (we each put 5-7% of our paychecks into 401k or ESPPs).

    I am racing to accumulate a liquid savings again, but wondering what the most lucrative future direction would be? Pay down student loans, start accumulating with Betterment / Wealthfront, Vanguard, or REITs? I want to rent out our 2nd br again to truly pay $0 to live (since we have HOA dues + property tax), but my wife strongly opposes this so we have put that option to rest.

    Thanks to anyone and everyone for advice! Sorry if this is a bad question — I’ve taken in a TON of new info over the past month and just find my head spinning a bit from all the options.

  • Mihai April 18, 2017, 2:58 am

    This post is truly amazing and inspiring.
    We managed to pay off the mortgage as well (3 years 4 months total) but if was on a apartment in Bucharest.
    Lived of my wife’s income and basically paid the bank with mine.
    I can tell you it was totally worth it. Yes I know the money only returned 5.2% (this is Eastern Europe) instead of 12% if invested in the stock market.
    We all know that 12%>5%. But those 5% were not fixed (started at 5.5% and went down to 5.2% depending on international Euro rates). And nothing (except death and taxes) is guaranteed.
    Actually I even had a very small experimental investment account that increased to 70% in the past 5 years …

    What I am doing now is moving the same money(actually most if my income) to investments (75%index funds /25% bonds) and gaining back some of the loss.
    In the mean time I too can sit on the porch with my coffee and know I don’t owe anybody a dime (also closed all credit cards in December 2016).
    Focusing on financial independence (via investing hard) is so much easy now that credit risk is off the table.
    Actually about 35% of my bills are already paid by return on investments so now focusing on getting to 100% and then to paying for food/clothing. Still probably will not afford to pay for a new car (or renovation) via investments .. so 9-5 it is for the foreseeable future(10 -15 years)
    As a side note I know that Canada has several provinces preparing for basic income pilots so that would be a huge benefit for people not able to retire early (yet).
    Everybody would be like Mr. Frugal Toque (or even Mr. Money Mustache).

  • ThisTooShallPass January 21, 2020, 7:52 pm

    I searched and read quite a bit on this topic on this forum, however, I really appreciate the wise minds to look at my situation and provide some insight that puts me in the right direction. I truly respect this forum’s collective wisdom.

    In less than 6 months I plan to Retire Early from my job. Wondering if it is better to buy a house 100% cash or go for mortgage (20% down).

    Excellent credit rating, 15 year APY @ 3% and 30 years at 3.8%

    $400k comes out of the taxable savings account earning 2.35%.

    Age: 44, Married with two children

    Currently Renting. Relatively closer to work. High cost of living area with the highest property tax in the country.

    Planning to buy a house in low cost state but not too from where I live so current friends are “accessible”.
    Brand new house priced at $400k (2,300 Sq. Ft. , already factored in for some upgrades like bigger lot for vegetable garden, moving costs and certain one time costs).

    Expenses at early retirement would be $25k but we are flexible both ways.
    The magic number $625k (using 4% rule of thumb) is in taxable accounts (30% tax managed muni bond index, 70% stocks index for now but will transition to ~90% to stocks over time)

    ROTH, IRA’s are in good shape (don’t like to touch this for another 15-20 years, however, may take out some money from ROTH early for children’s collage in few years.

    If I go for the mortgage this $400k will be dollar cost averaged into the markets (more like 80 or 90 stock index rest bond index)

    Thank you, let me know if any additional information is required.

  • Will August 14, 2020, 5:32 pm

    Just a very late thank you. Great guest post. My wife and I finished our 15 year mortgage in 7.5 years. Come October we’ll be mortgage free for a year. This post was a major motivation for me and my wife.

  • Dean August 25, 2021, 11:15 am

    I recently bought a house, just before retiring. I could have paid cash, but instead I chose a 30-year fixed rate mortgage. First, it’s a hedge against inflation. The payment is fixed. I can put that expense in my monthly retirement budget and it never goes up. (Also, I get a tax deduction that’s particularly pleasing – because I only pull from tax-deferred accounts amounts that I can deduct, money in a regular IRA that would otherwise be taxed as income effectively becomes 0 taxed.)

    I borrowed roughly $200k and the bank tells me that over the next 30 years, I’ll fork over about $100k in interest alone, if I just make regular payments on their schedule. I’m absolutely thrilled to have this debt. Why? Because I could have paid cash, but instead I’m investing that $200k. If I let that money sit for 30 years, and I earn the same average annual rate of return that I have over the past 30, it grows to $3,735,837. Why on earth would I give up $3,735,837 just to save $100,ooo?

  • Jon February 13, 2023, 1:42 am

    Well, interest rates are now 6+% for both a 15-year fixed and a 30-year fixed. I wonder if this older article needs a refresher. Should I pay off my $180K mortgage ASAP, or keep the required payment for next 15 years?


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